The U. S. Congress is reviewing the regulatory framework for the taxation of digital assets at the time of this writing. At the president’s direction,[1] rules that affect digital asset taxation have been a focus of both the House of Representatives and the Senate.[2]  

In particular, since the House passed the CLARITY Act (pending in the Senate) and the report of the President’s Working Group on Digital Asset Markets was issued in July 2025,[3] a number of Congressional Committees have been reviewing existing and proposed digital asset taxation in some detail. I have been involved with these efforts as an invited witness, providing testimony before the Senate Committee on Finance in October,[4] and offering my feedback in various follow-up communications with governmental leaders. This month, Representative Steven Horsford (D-NV) and Representative Max Miller (R-OH) released a new discussion draft of The Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields (PARITY) Act (Draft Bill).[5] It addresses some of the issues under review in this series, including anti-abuse rules.

Anti-abuse rules are important in tax law. They are designed to prevent bad actors from exploiting “tax loopholes” and thereby avoid paying taxes that they would otherwise owe. As I note in my book, “although clear in principle, this area can get murky when some economics may exist and the motivation of the taxpayer is unclear.”[6]

In these markets, with the high speed and low cost of digital asset transactions, and the ease with which digital assets can be divided into smaller and smaller units, there is the possibility of massive-scale manipulation. Lawmakers and agencies must carefully and proactively prevent such behaviors through statutory reforms and Treasury Regulations. The crypto industry itself is also developing surveillance frameworks to automate compliance and pattern recognition to identify and help prevent fraudulent behaviors.

In this fifth part of our crypto[7] series, I look at three types of anti-abuse rules: constructive sales, wash sales, and straddles—all of which are important in addressing the frameworks for crypto taxation in the United States.

The constructive sale rule

The constructive sale rule prevents taxpayers from entering into certain financial positions to benefit from the appreciation in value of equity securities they own without actually selling their shares.

Under Internal Revenue Code (Code)[8] Section 1259, the constructive sale rule is designed to treat “enumerated transactions” as actual sales. A constructive sale is defined as one of three types of transactions entered into by an owner of an appreciated financial position (AFP): (1) a short sale on; (2) an offsetting notional principal contract; or (3) a futures contract/forward contract to deliver the same or substantially identical property.

The constructive sale rule is intended to prevent taxpayers with appreciated stock positions from entering into such related sales of their shares for cash, while locking in cash by entering into a short-against-the-box transaction so the taxpayer could receive cash, or have a loan in place, without actually selling their shares.

At the date of this writing, we have two legislative proposals aiming to provide for the tax treatment of digital assets that I will address here. The first is the draft Senate Bill proposed by Senator Lummis, S.2207, introduced on June 30, 2025;[9] and the second is the recent discussion draft House Bill proposed by Representatives Horsford and Miller, introduced on December 20, 2025 (Draft Bill).[10]

S.2207 does not address constructive sales, but the Draft Bill does. We don’t know what the actual proposed legislation might look like because the Draft Bill has just a placeholder provision that says Code Section 1259 will apply to digital assets. An explanatory note says that there is agreement as to policy direction, but the provision remains under technical drafting review.

At present under current law, Code Section 1259 “prevents taxpayers from using certain offsetting transactions—such as short sales, forward contracts, futures contracts, and notional principal contracts—to lock in gains on appreciated stock or other financial positions while deferring tax.” An amendment to Code Section 1259 is needed because “[c]omparable strategies are increasingly available in digital asset markets but are not clearly covered by existing statutory language, allowing gain deferral that is inconsistent with the realization principle.” The proposed constructive sale provision “is intended to treat a taxpayer as having made a constructive sale of a digital asset where the taxpayer enters into one or more transactions that substantially eliminate both the risk of loss and the opportunity for gain with respect to an appreciated digital asset position.[11]”

If Congress ultimately decides to amend the constructive sales rule to include some or all types of digital assets for certain types of transactions where the taxpayer’s opportunity for gain and risk of loss are substantially eliminated, digital assets would be treated differently from all other commodities and financial products. 

If Congress were to only include certain types of digital assets, then what would be the (1) rationale for inclusion/exclusion, and (2) consequences of selective inclusion and exclusion? For example, should stablecoins be included in the constructive sales rule? As the Draft Bill notes, “Comparable strategies are increasingly available in digital asset markets but are not clearly covered by existing statutory language, allowing gain deferral that is inconsistent with the realization principle.” My question is a simple one: Is this doable?

The wash sales rule

The wash sales rule prevents taxpayers from taking tax losses on the sale of stock or securities and quickly returning to the same economic position.

Under Code Section 1091, losses on stock or securities are deferred if the taxpayer acquires substantially identical stock or securities within the period 30 days before and 30 days after the stock or securities were sold at a loss (the 61-day period). At present, the wash sales rule only applies to those digital assets that are stock or securities for tax purposes. Since many digital assets are commodities, they currently fall outside of the scope of the wash sales rule.

Certain stablecoins should be exempt from the wash sales rule if Congress chooses to extend the wash sales rule to include any digital assets. The opportunity for tax-loss harvesting is limited with stablecoins. Please see our recent Q&A with Andie series on Tax-Loss Harvesting, and specifically Part II: The Wash Sales Rule for a more detailed discussion.

Stablecoins (perhaps as they are specified in Code Section 6045 or as defined in the GENIUS Act[12]) are appropriate to exclude from the wash sales rule. “Payment stablecoins,” as defined in the GENIUS Act,[13] are used as a means of payment or settlement where the issuer is obligated to convert, redeem, or repurchase the stablecoin for a fixed amount of monetary value. The wash sales rule could be irrelevant because payment stablecoins are designed to maintain a fixed monetary value, prevent taxpayers from taking tax losses, and returning to the same economic position. The opportunity for gain and the risk of loss would be less relevant.

Given the expectation that there would be limited gains or losses on certain types of stablecoins, the reasoning behind the wash sales rule—to prevent holders from taking tax losses and returning to the same economic position—is not met. Because stablecoins can, however, generate gains and losses, any stablecoin exclusion should be carefully considered. For this purpose, payment stablecoins should not include digital assets that are a national currency, a deposit, or a security under the federal securities laws.

Both S.2207 and the Draft Bill address sales of digital assets and the ability of a taxpayer to take losses. S.2207 extends the wash sales rule to specified assets, providing an exception for stablecoins that report minimal gains or losses.

The Draft Bill extends the wash sales rule to digital assets, which the discussion draft then goes on to define by substituting “specified assets” for “securities.” Detailed additional language is also proposed to address basis adjustments in the case of wash sales. Taxpayers that elect into mark-to-market would be exempt from the wash sales rule under this Draft Bill.[14]

Transactions entered into in a taxpayer’s ordinary course of business and in its dealer transactions should both be exempt from the wash sales rule.

Because digital assets can move across multiple wallets, anti-abuse rules should address related party transactions and clarify reporting obligations to prevent “bad actors” from “gaming the system.”

If digital assets are made subject to the wash sales rule, the mark-to-market rule at Code Section 475 should be amended to include an election into Code Section 475 for dealers and traders in digital assets. This would be an important option for those taxpayers looking to reduce the burden of tracking and applying the wash sales rule to their digital asset positions.

The straddle rules

The straddle rules aim to stop taxpayers from offsetting their financial market positions at the time they recognize gains or loss.

Tax straddle rules fall under Code Section 1092. They prevent taxpayers from deferring losses while holding offsetting positions in “actively traded personal property” where the value of one position moves inversely to the value of another position. Interest and carrying charges on to a straddle position must be capitalized and added to the basis of the position they relate to.

Modified wash sales and modified short sales rules established in Temporary Treasury Regulations,[15] extend the wash sale concept beyond stock losses to straddle losses. The modified wash sales rule prevents a deduction on the disposition of a position at a loss if the taxpayer has an unrecognized gain in a successor position. (The modified short sales rule suspends the holding period for a position during the period the taxpayer holds offsetting positions and successor positions to the initial offsetting position.[16])

Actively traded personal property—including digital assets—are subject to the straddle rules at Code Section 1092. Although the straddle rules are not identical to the wash sales rule, they do capture abusive (and non-abusive) transactions and include the modified wash sales provision that is a “modification” of the wash sales rule.[17] While considering application of the wash sales rule, Congress should consider the interplay with the straddle rules that apply to actively traded digital assets.

In considering the appropriateness of including digital assets in the wash sale rules, it is useful to remember that actively traded digital assets are currently subject to the straddle rules. Although the straddle rules are not identical to the wash sales rule, they prevent abusive transactions by disallowing losses when straddle positions can be used to defer gain.

General Anti-Abuse Rules

The Code provides for several different anti-abuse provisions, and I have looked at a few of them in this part of the series. In addition, legislative efforts to address the taxation of digital assets include some anti-abuse rules that are specifically targeted at crypto.

S.2207 has an anti-abuse rule where the principal purpose of a transaction is to eliminate gains. It gives the Treasury authority to issue “regulations” and other guidance as may be necessary to carry out the purpose of this section and prevent tax avoidance.

The Draft Bill notes that its sponsors intend for the Bill to address related-party transactions, and it also gives the Treasury authority to address certain stablecoin transactions.

[1] Executive Order 14178—Strengthening American Leadership in Digital Financial Technology, Administration of Donald J. Trump, (Jan. 23, 2025), available at https://www.govinfo.gov/content/pkg/DCPD-202500169/pdf/DCPD-202500169.pdf.

[2] These rules include: Publ. Law 119-27 Guiding and Establishing National Innovation for U.S. Stablecoins Act’ or the “GENIUS Act,” (Jul. 18, 2025), available at https://www.congress.gov/119/plaws/publ27/PLAW-119publ27.pdf; H.R.1919 - Anti-CBDC Surveillance State Act (Aug. 7, 2025), available at https://www.congress.gov/bill/119th-congress/house-bill/1919/all-actions; current legislation, including S.2207 To amend the Internal Revenue Code of 1986 to reform the treatment of digital assets (Sen. Lummis) (Jun. 30, 2025); and H.R.3633 - Digital Asset Market Clarity Act of 2025 (Jul. 17. 2025), available at https://www.congress.gov/bill/119th-congress/house-bill/3633; as well as the discussion draft (Draft Bill) from Representatives Horsford and Miller.

[3] Strengthening American Leadership in Digital Financial Technology, The President’s Working Group on Digital Asset Markets (Jul. 2025), available at https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf.

[4] Examining the Taxation of Digital Assets, Full Committee Hearing, United States Senate Committee on Finance, October 1, 2025, the Dirksen Senate Office Building, Capitol Hill, Washington, D.C. available at https://www.finance.senate.gov/hearings/examining-the-taxation-of-digital-assets.

[5] Reps. Horsford, Miller Unveil Discussion Draft to Bring Tax Clarity to Digital, Press Release, House of Representatives (Dec. 20, 2025) available at https://horsford.house.gov/media/press-releases/reps-horsford-miller-unveil-discussion-draft-to-bring-tax-clarity-to-digital.

[6] See Financial Products: Taxation, Regulation and Design (2025), Andrea S. Kramer and Nicholas C. Mowbray, CCH (Mar. 17, 2025) for detailed discussion of anti-abuse considerations, code and treasury guidance, and tax shelters as well as deep dives on anti-abuse rules for constructive sales, wash sales, and straddles.

[7] “Crypto” has become a generic term that is interchangeable with “Digital Assets” in popular vernacular. “Cryptocurrencies” are one category among many classes of digital assets. Digital assets include cryptocurrencies like Bitcoin, stablecoins, security tokens, utility tokens, non-fungible tokens, real world asset tokens and crypto derivatives / digital asset-based derivatives. I will go into each of these asset classes in greater detail below as I offer a primer on the crypto vernacular to begin this series.

[8] Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended (the “Code”) or the applicable regulations promulgated pursuant to the Code (the “Regulations”).

[9] S.2207 To amend the Internal Revenue Code of 1986 to reform the treatment of digital assets (Sen. Lummis) (Jun. 30, 2025).

[10] Draft Bill, available at https://horsford.house.gov/sites/evo-subsites/horsford.house.gov/files/evo-media-document/miller-horsford_digital-asset-tax-bill-discussion-draft.pdf.

[11] Ibid.

[12] Publ. Law 119-27 Guiding and Establishing National Innovation for U.S. Stablecoins Act’ or the “GENIUS Act,” (Jul. 18, 2025), available at https://www.congress.gov/119/plaws/publ27/PLAW-119publ27.pdf

[13] Ibid.

[14] For a discussion, see Subject Matters: Crypto, Part IV Mark-to-Market, ASKramer Law LLC (Dec. 30, 2025).

[15] Temp. Treas. Reg. § 1.1092(b)-2T(a)(1) (1986), and Temp. Treas. Reg. § 1.1092(b)-5T(g) and (h) (1986) for temporary definitions.

[16] Ibid.

[17] Temp. Treas. Reg. § 1.1092(b)-1T.